Royal Mail warns of service threat

Updated: 

Royal Mail

Royal Mail has warned of a threat to the universal postal service because rivals can "cherry-pick" easy-to-serve urban areas.

The recently-privatised group issued the warning as it announced a rise in annual profits after revenues growth from parcel deliveries more than offset a further decline in letter volumes

In its first set of results since its controversial £3.3 billion stock market flotation in October, the company said operating profits after transformation costs were £430 million in the year to March 30, against £403 million a year earlier.

The figures sparked a fresh row over whether shares were sold too cheaply last year, with unions saying it was now clear that taxpayers had been "fleeced".

Royal Mail chief executive Moya Greene singled out TNT Post, which is now delivering in London, Manchester and Liverpool.

As the universal service provider, Royal Mail is required to provide access to competitors such as TNT for final mile deliveries.

Ofcom is investigating a complaint from TNT over Royal Mail's decision to change conditions and increase the prices it charges to deliver post collected and pre-sorted by its competitors.

Ms Greene called for "timely regulatory action" to prevent the impact of direct delivery competition from undermining the economics of the universal service.

She said: "TNT Post UK can cherry-pick easy-to-serve urban areas, delivering easy-to-handle post to homes less frequently than Royal Mail and to no defined quality standard.

"Royal Mail is required to deliver six days a week, overnight, throughout the whole country, to stringent quality standards and at a uniform, affordable tariff.

"Moreover, we are also required to deliver any items TNT Post UK does not consider economic to deliver itself. If TNT Post UK is successful in delivering its stated objectives, this could threaten the fundamental economics of the universal service."

Under the universal service, Royal Mail delivers post to addresses across the UK for the same price.

TNT chief executive Nick Wells said Royal Mail should stop "whinging", insisting his company was trying to create innovation in the postal market.

"We are delivering choice for our customers, and that is good for the market overall, as well as creating jobs. We are an entrant in this market and we will pay Royal Mail, for the areas we don't cover, a very fair and reflective price.

"The regulator has repeatedly said there is no threat to the universal service.

"Royal Mail should stop this sabre-rattling. We have a small market share, there is absolutely no threat to the universal service."

An Ofcom spokesman said: "We do not believe that there is presently a threat to the financial sustainability of the universal postal service.

"Ofcom keeps the market under constant close review, examining the future business plans of major operators. We have a duty to secure the Universal Service, and if we identify any future threat we have powers to step in to protect it.

"We would expect Royal Mail to take appropriate steps to respond to the challenge posed by competition, including improving efficiency."

Brian Scott of Unite, which represents 7,000 Royal Mail managers, said: "The taxpayer has been fleeced. Instead of these profits flowing into the Treasury's coffers to pay for schools and nurses it's flowing into the pockets of shareholders, some of which enjoyed 'mates rates' when Royal Mail was sold off on the cheap.

"Unite members in Royal Mail are paying the price with job losses and the uncertainty is set continue with a massive £106 million set aside to cover 'transformational costs'.

"We need full transparency of the sale and for ministers to come clean over their gentlemen's agreements and any winks and nods they gave to investors."

Chuka Umunna, shadow business secretary, said: "Ministers' case for their Royal Mail fire sale has now been completely demolished. We know Royal Mail was profitable in the public sector, but David Cameron's Government privatised Royal Mail's profits after making the taxpayer pick up the tab for its historic debts.

"Vince Cable (Business Secretary) said Royal Mail's share price should be judged in the months after the sale, yet its value is now over 60% higher than the Government received for the public's stake.

"Taxpayers have been left short-changed by hundreds of millions of pounds at a time when families are being hit by a cost-of-living crisis, while the City investors the Tory-led Government prioritised giving Royal Mail shares have been laughing all the way to the bank."

Royal Mail said its letters performance was at the better end of expectations, with revenues down 2% to £4.6 billion on a year earlier.

Addressed letter volumes declined by 4% but the trend improved over the year due to stronger economic conditions and one-off impacts such as energy companies writing to customers about price rises.

Parcel revenues increased by 7% but in volume terms the one billion items delivered in the period was flat compared with the previous financial year.

Royal Mail continues to expect UK-addressed letter market volumes to decline by 4% to 6% a year, although in the current period it will be helped by this month's European and local elections and economic improvements.

Since 2003, more than 50,000 people have left the UK business, with 12,000 leaving in the last four years. In March, the company launched a consultation with unions on a proposal to achieve a net reduction of 1,300 roles.

Royal Mail has announced plans to trial a Sunday parcel delivery service in response to increasing demand for goods ordered online.

Royal Mail shares closed 56p down at 519p, valuing the business at £5.2 billion, after originally floating in October at 330p.